The cryptocurrency and Bitcoin market is experiencing quite a revival in October. One of its symptoms is a sharp increase in the volume of open interest in BTC derivatives.
Open interest in derivatives markets is a good indicator of the health of the cryptocurrency market. It suggests that investors from the traditional finance market (TradFi) are increasingly directing their attention and funds to Bitcoin.
The strong upward movement in the BTC price led to a new all-time high (ATH) in the BTC options market.
Derivatives: Options vs. Futures
Options are the rights held by the owner to be able to buy or sell an asset at some future date at a specified price. The price of execution is determined at the beginning of the contract.
At that time, the price for acquiring the option – the premium – is also paid.
Futures contracts are agreements to buy or sell an asset at some future date at a specified price. The fixed price is called the future price.
Both options and futures contracts are financial derivatives. Their development and fluctuation depend on the underlying assets, such as stock indexes, currency pairs, or the spot price of BTC, for example.
Both instruments can be used with leverage, i.e., exposed to a higher nominal value than the invested funds.
On the other hand, the differences between the two include the way positions are liquidated, prices or symmetric or asymmetric guarantees.
Open Interest in the Bitcoin Options Market Reaches ATH
Since October 24, open interest in the Bitcoin options market has generated new all-time highs (ATH). Data from Glassnode shows that the volume of all put and call positions reached $16.35 billion yesterday. The previous peak was $14.15 billion, recorded in March 2023.
The capital inflow coincides with the BTC price breaking out of the $31,500 area in July and reaching a new one-year peak. A day earlier, on October 23, the BTC price surged more than 10% from its bottom at $30,000 to close at $33,000. Such a sharp and bullish move has attracted the attention of investors who, through derivatives, want to join the upward trend.
Interestingly, the currently recorded peaks in the BTC options market have surpassed the records from the end of the previous bull market in 2021.
One Twitter user, @kellyjgreer, wrote, “Bitcoin options just surpassed peak open interest from 2021.” It is worth recalling that at that time, the price of BTC also reached an all-time high of $69,000.
Meanwhile, another analyst, @Negentropic_, pointed out several factors that create a favorable environment for bullish Bitcoin price action:
- The dominance of call (bullish) open positions on options
- Growing open interest at $8.8 billion
- Strong indicators favoring traders with long positions
- Key target: Maintain support at $34,000 and aim to exceed 100,000 open positions.
In conclusion, he stressed that the most relevant level now is $34,000. In addition, he added that rising open interest could also be a signal of impending volatility. It could lead either to a continuation of the increases or a correction and consolidation in the $32,000 – $35,000 range.
Open Interest in the BTC Futures Market
We are also seeing a similar situation in the Bitcoin futures market. Data from Glassnode shows that an annual peak of $13.59 billion was reached yesterday.
This volume corresponds to trading in the futures market on the largest cryptocurrency exchanges, which include Binance, Bitfinex, BitMEX, Bybit, CME, Deribit, FTX, Huobi, Kraken, and OKX. The previous annual peak was $13.43 billion, dating back to July 13, 2023.
An important difference between new peaks in the options market and futures contracts is that the latter did not reach the ATH.
Looking at the chart going back to 2020, we see that here, the ATH in the form of a double top was generated during the bull market of 2021.
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Back then, the total volume of open interest in futures contracts was about $24.27 billion, or around 45% above current values.
Despite this, well-known on-chain analyst @WClementeIII noted that in recent days, trading volume on the CME futures market has reached the highest values of 2023. He then concluded:
“Tradfi is back trading Bitcoin.”
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